Question for the board: What happens when the Chinese get caught, red-handed, stealing IP. Like in the case of AMSC? That is not borrowed IP, that was stolen and they had a "good" relationship with partners in China, knew their kids, wives....that didn't stop them from the royal screw job AMSC suffered, hundreds of employees now losing their homes and out of jobs forced to relocate for work? What will happen when they get caught? What price will Sinovel pay, if any?

Interestingly, even though the topic might sound like a technical one, the issue is actually more social rather then technical. There's one fundamental difference between Chinese and Western philosophies: in China nation and country are everything and individual is nothing. This was always the traditional mentality that got strengthened by decades of communist ruling. In the West it's almost the other way around with governments always struggling to find a balance. This difference creates and will continue to create enormous compatibility issues. Just like some of the Natives in America do not accept lend ownership, Chinese do not understand how it can be your "property" only because you came up with it. You live in a society that demands sharing and so all your ideas belong to the society, not to you.
Interesting analogy with traffic lights. So many times I was in a situation when I approach an intersection facing red. I can clearly see at least 300 meters in each direction and there's none anywhere on the roads. And yet I stop and wait for the green because there may be hidden camera or police car in hideout. Now, in all honesty who can tell me this is not stupid? In China you may cross on red and if all goes well - good for you, but if you screw up - none will be there to defend you and you will have to face full consequence of your act. That's why Chinese are more prepared to make their own decisions without counting on the big brother and they will always decide on the spot if it is for their benefit to use "your" IP. They will not wait for a permission! Then again, because it's the big thing and long perspective that matters most there, they will keep pushing and building their own "civilized and advanced" environment and IP will be a part of it. It will certainly take a long time, fortunately or not none of us will live to see them catch up with the West. But in the end it's only a matter of time as long as they keep pushing for it.

"But...I just want to give remind people that it was the West that invaded the Eastern countries like China and India and looted their wealth and IP. Indians made the best steel in the world and had the monopoly on cotton export."
It's a little more complicated than that.
Britain imposed high tariffs on Indian cotton to protect the domestic wool trade. But with the industrial revolution, they started applying capital to manufacturing. The spinning jenny and the powered loom were notable examples, which vastly increased productivity. British cotton became *cheaper* than Indian cotton, which was still a mostly manual industry, and effectively destroyed the Indian cotton trade. Something very similar happened to Indian steel.
The West industrialized. India and China did not. The results were quite predictable.

I've been warning about the Chinese manufacturing trap for years.
But...I just want to give remind people that it was the West that invaded the Eastern countries like China and India and looted their wealth and IP. Indians made the best steel in the world and had the monopoly on cotton export. I don't have to mention the Opium wars that ruined China.
Americans think that history began when they were born. Old countries like China have memories that go back for centuries. The feeling of humiliation from the European and Japanese invasions is still fresh in their minds. So they think little of our needs for IP protection -- it's nothing compared to poisoning of millions with Opium. Until the Chinese achieve a sense of comfort with their new status, they will continue to "get even with the West (and Japan)"
One other thing, if you go back in history you'll find that America was considered a big IP thief. We didn't uphold copyrights until the late 1800s, and we blatantly stole technology for industrial machinery from the Europeans (who themselves stole from each other).

C VanDorne:
That's the interesting question. But fundamentally, this is not about personal property, it's about *institutional* property. Even under Communism, there was personal property, but more important, the means of production were owned and controlled by the state.
The underlying issue is one I mentioned earlier. For most if its history, China was largely isolated from the rest of the world. Trade occurred, but at nowhere near the current volume. Chinese saw themselves as the oldest and most advanced civilization on the planet. The world was Chinese and "everybody else", and if you weren't Chinese, different rules applied to you. (This is not unique to China: look at any human culture in history, and I think you'll find notions of Us and Them, where *we* expect certain behavior from each other, but *they* are fair game.)
Chinese will think first and foremost of the betterment of China. A Chinese may not understand why there is anything wrong with taking IP provided by a Western firm and redistributing it internally. The providers are not Chinese. The rules governing such things in China among Chinese simply may not apply.
Integration into the global economy requires fundamental changes in the underlying patterns of Chinese society, like understanding and respect for the concept of IP and the idea that taking it and redistributing it without formal permission is theft. The note from the previous poster about DVDs for sale with pirated copies of commercial software, and the notion that the physical DVD had value but what was on it did not is an example of the hurdles to be run. There are folks in the *West* who will feel that only material goods are "property", and IP is a legal fiction to be ignored if there is a benefit from doing so.
The fundamental problem is that change of underlying patterns like that does not and *cannot* happen quickly. Full integration of China with the global community will be a long and often painful process.

McCunney,
It is interesting, this phrase: "the social agreement on acceptable behavior". I think that we'd all benefit from quantifying that.
I'll start with this question: What kind of respect for Intellectual Property (by default a very personal thing) can we expect from a people who have been tought by 62 years of communism that there is no such thing as personal property?

I just don't get it? Why is anyone afraid their IP will be stolen; you can rest assured that it will be stolen. Sad but true. The West has grown fat feed by cheap labour and natural resources (causing enormous environmental impact) in China. Short term it was cheaper to rely on China than to develop sustainable manufacturing at home. Now it's payback time.

China got spoiled by open access to Western technology & business methodology for the last 2 decades since Tian An Men massacre. This happened because Western Corp.s were misled by Consultants ( like Henry Kissinger who has been on China's payroll perhaps since 1971 ) into walkin into the trap. Thanks to active goading from Wall St. that is motivated by the high margins possible with China's still regimented low - cost labor, US Corp.s like Motorola, GM & GE gave away the store and are on the verge of collapse. This is very much like how China pilfered Defense technology from the Soviet Union and then in 1970 attacked them. China is a nuclear armed continental power with neo-Imperialist ambitions - it is not a vassal state like Japan. By following the same outourcing model with China as with the tiny Asian Tigers, Wall St. and US traders have clearly overplayed their hands . The Chinese like to skin animals alive and eat their twitching flesh. The US had better pay heed before its too late.